Contents

Chapter 18
Limitation periods

Issues arising

18.31In this section we consider the following issues arising from our consideration of the submissions:

(a) Are the Limitation Act 2010 periods generally appropriate for pecuniary penalties?512
(b) Should the primary limitation period for pecuniary penalties run from the date of the contravention, or the date of its discoverability?
(c) Do limitation periods for pecuniary penalties need to be consistent with the limitation periods applying to other forms of enforcement (such as compensation orders or criminal offences) available for the same conduct?
(d) Would a different limitation period for pecuniary penalties undermine the law reform objective of civil and criminal limitation period standardisation?
(e) Is it possible or desirable to identify a preferred default limitation period for pecuniary penalties, or should the limitation periods be set on a case-by-case basis, depending on the particular nature of the specific pecuniary penalty provision and the conduct it addresses?
(f) Is it advisable to have an express provision in each pecuniary penalty statute for clarity and completeness?513

Are the Limitation Act periods generally appropriate for pecuniary penalties?

18.32Limitation periods for pecuniary penalties more often vary from the Limitation Act defaults than apply them. This may be because many pre-date the passing of the Limitation Act 2010. However, no amendments to pecuniary penalty limitation periods have been promoted to expressly adopt aspects of the Limitation Act model – indicating that its standard periods may not necessarily be suitable in the penalty context.514
18.33Selecting a limitation period is clearly a balancing exercise:515

Statutes of limitations reflect a delicate balance among the plaintiff’s, defendant’s, and society’s interests. They are designed to create predictability, uniformity and fairness by preventing litigation of stale claims. Limitations periods must be long enough to protect the plaintiff’s and society’s interests in having the claim prosecuted. On the other hand, they must be short enough to protect the defendant, the court, and society from wasting time and resources litigating old claims. … To choose an appropriate limitations period, the legislature must evaluate the nature of the underlying cause of action, its policies, and society’s interests in having the right asserted. Then the legislature must select a reasonable time in which the plaintiff can discover, investigate, and assert his or her claim. The legislature must also estimate how long the evidence and witnesses will be available and reliable. The time period chosen is the period after which the need for repose and avoiding stale claims outweighs the interests in enforcing the claim.

18.34The Court of Appeal noted that limitation provisions in the Fair Trading Act 1986:516

…indicate an intention on the part of Parliament to shorten and confine the limitation period. That approach appears to have been a counterweight against the potential width and reach of the Act for the purpose of giving those engaged in trade some reasonable certainty as to when their potential liability under the Act will come to an end. Although the Act is consumer oriented Parliament has endeavoured to strike a balance between the concepts of protecting and compensating consumers and long exposure of traders to the risk of litigation.

18.35We have explored a number of policy issues to assess the desirability of modifying the Limitation Act approach for pecuniary penalties. First, the rationale for the Limitation Act model that applies to ordinary litigants is not necessarily the same in the context of regulatory enforcement.

18.36The policy factors relating to plaintiffs are somewhat different in the pecuniary penalty context. A key rationale for the six-year limitation period for civil claims is to allow plaintiffs sufficient time to bring legitimate claims before the courts. This includes making sufficient allowance for plaintiffs who may have capacity and disability issues, and allowing for latent issues to be uncovered. Enforcement bodies or regulators are in a different position to ordinary litigants, as these bodies are generally charged with oversight of a statutory regime, have regulatory monitoring powers and have State resources available to initiate proceedings. Responsive regulation, regulatory efficiency and market certainty may require a more nuanced approach – a standard six-year period, regardless of the date of discoverability, appears somewhat arbitrary in the regulatory context.

18.37While the same factors underlying the Limitation Act relevant to defendants do apply to pecuniary penalty limitation periods (such as fairness to intended defendants, certainty and not being disadvantaged by an overly long limitation period), it could be argued that they have greater strength in an enforcement context with the potential for punitive measures to be imposed.

18.38Secondly, there may be an issue of regulator discretion about which contraventions to prioritise in terms of enforcement action, taking account of the likelihood of success and the efficient allocation of regulatory resources. In some pecuniary penalty regimes, it might also be necessary to allow sufficient time for the regulator to work through the range of regulatory tools available in the enforcement hierarchy before resorting to penalty proceedings. Therefore, a longer limitation period might be attractive in terms of regulator flexibility.

18.39However, we note that the choice of enacting a pecuniary penalty provision may create a public or market expectation that proceedings will be initiated fairly promptly upon discovery (in the same way that there is a public assumption that a crime will be prosecuted promptly where there is sufficient evidence to proceed). The enactment of sizeable maximum pecuniary penalties in legislation, for sufficiently serious contraventions, is likely to give rise to a consequential enforcement expectation.

18.40Thirdly, while it can be argued that effective and responsive regulation requires enforcement action to be brought in a timely manner, contraventions may be particularly difficult to detect in some regimes (especially where they are actively hidden), and the enforcement body may need an adequate window of opportunity to discover the contravention. A discoverability approach would provide flexibility to deal with this issue, as well as the Limitation Act’s fraud exception to the longstop period.

18.41Fourthly, there is an argument that the Limitation Act’s late knowledge discoverability period adds little in the pecuniary penalty context, except where there is fraud or the regulated entity actively avoids detection, in which case section 48 could be used to extend the limitation period. In the absence of those circumstances, it may be difficult for an enforcement body to successfully argue for an extension of the six-year primary Limitation Act period. This is because the test for reasonable discoverability may be more strictly construed against an enforcement body, given its functions and resources, compared to an ordinary litigant. This suggests that the structure of the Limitation Act (primary period plus late knowledge extension) may not be optimal for pecuniary penalties.

18.42Other factors may also favour shorter limitation periods from the perspective of market participants. For regulated entities and markets, there will be an interest in certainty and finality that could favour a shorter limitation period. In some cases, it will clearly be appropriate for penalty proceedings to be initiated promptly, depending on the context and seriousness of the contravention. Insurance implications may arise for defendants if standard insurance clauses covering a range of breaches are predicated on a shorter limitation period. In the Issues Paper, we also noted the judgment of the High Court in Re Network Agencies International Limited,517 suggesting that the choice between short and long limitation periods will turn on whether the predominant purpose is to punish or to compensate.518

18.43On balance, our conclusion is that the overall structure of the Limitation Act could result in limitation periods that are overly long for particular pecuniary penalty regimes. The Limitation Act is, arguably, not optimally suited to the context of regulatory enforcement, in which certainty, efficiency and regulatory responsiveness are key drivers. We prefer the development of a bespoke model limitation period for pecuniary penalty statutes. The model provision should be a streamlined version of the Limitation Act model, as we discuss further below. However, there may be particular cases where the full Limitation Act model can be justified.

Should the limitation period run from the date of the breach or from the date of its discoverability?Top

18.44As noted above, a primary limitation period can be structured either as a period that starts to run from the date of the contravening behaviour (as per the Limitation Act six-year primary period), or from the date of its reasonable discoverability.519 Where discoverability is used, the actual length of the limitation period will depend on the nature of the contravention and length of time that is considered reasonable for discoverability in the circumstances. Discoverability is used in a number of New Zealand statutes (besides the pecuniary penalty statutes mentioned at [18.19] above) as the basis for limitation periods.520
18.45The Limitation Act 2010 has not adopted discoverability for the primary limitation period (although the late knowledge period is based on discoverability). However, other jurisdictions have used discoverability as the basis for the primary period.521 Canada’s Uniform Limitations Act 2005 has been adopted in at least five provinces, establishing a limitation of two years from discovery (with a 15 year longstop, subject to wilful concealment or wilful misleading of claimant). The Law Commission of England and Wales has recommended a three year civil limitation period from the date of discoverability,522 and the Irish Law Reform Commission has recommended a two year civil limitation period from the date of actual or constructive knowledge with a 15-year longstop.523

18.46Reasons to consider adopting a primary limitation period structured around discoverability include the following:

18.47Arguments against adopting discoverability as the basis for the primary limitation period include the following:

18.48A primary period based on the discoverability concept could bring its own complexities about when an enforcement body might reasonably be expected to have discovered a contravention, potentially giving rise to interlocutory arguments, although this could be addressed in the drafting of the limitation provision. It might not actually be any shorter in some cases than a limitation period based on when a contravention occurs, although it might mean that some proceedings are brought more quickly when a contravention is discovered.

18.49The Commission has previously noted that the disadvantage of the discoverability approach is uncertainty: “it has caused considerable confusion and unfairness because there is no clear cut-off point”.525 This can be addressed through the inclusion of a longstop period to provide a definitive end point. Concerns about the lack of certainty also carry less force in a pecuniary penalty context as what amounts to reasonable discoverability is likely to be more strictly construed against enforcement bodies than ordinary plaintiffs.

18.50On balance, our conclusion is that the advantages to using discoverability as the basis for the primary limitation period in the pecuniary penalty context outweigh the disadvantages, and that the disadvantages can be properly addressed.

Do limitation periods for pecuniary penalties need to be consistent with other regulatory tools available for the same conduct?Top

18.51This was an issue raised in some of the submissions, suggesting that different limitation periods for pecuniary penalty orders and other civil orders such as compensation orders would be problematic. Statutes that contain both criminal offences and pecuniary penalties for the same type of conduct may also have different limitation periods.

18.52However, the different policy rationales for the different types of orders may, in our view, justify different limitation periods. In relation to compensation orders, the enforcement body is representing those who have suffered loss. This is more analogous to ordinary civil litigation between a plaintiff and a defendant.

18.53Another point of comparison is the limitation periods under the Criminal Procedure Act 2011.526 As quasi-criminal punitive measures, pecuniary penalties have some commonality with criminal offences. If they were criminal offences, pecuniary penalties would be “category 1” offences, attracting a five-year limitation period under section 25(3)(c) of that Act, assuming the maximum penalty exceeds $20,000.527 However, the Criminal Procedure Act period is a default, which can be altered by a specific statute. The Health and Safety Reform Bill 2014, for example, proposes:528
(1) Despite section 25 of the Criminal Procedure Act 2011, proceedings for an offence against this Act may be brought within the latest of the following periods to occur:
(a) within 2 years after the offence first comes to the notice of the regulator:
(b) within 1 year after the date on which a coroner completes and signs a certificate of findings under section 94 of the Coroners Act …
(c) if an enforceable undertaking has been given in relation to the offence, within 6 months after—
(i) the enforceable undertaking is contravened; or
(ii) it comes to the notice of the regulator that the enforceable undertaking has been contravened; or
(iii) the regulator has agreed under section 149 to the withdrawal of the enforceable undertaking.
(2) A proceeding for an offence against section 42 [offence of reckless conduct in respect of health and safety duty] may be brought after the end of the applicable limitation period in subsection (1) if fresh evidence relevant to the offence is discovered and the court is satisfied that the evidence could not reasonably have been discovered within the relevant limitation period.

18.54It could be argued that the pecuniary penalty primary limitation period should generally be no longer than five years (from the date of the conduct). This is consistent with the criminal limitation period for offences attracting larger fines and, being less than the six-year limitation period for ordinary civil claims, might reflect the different underlying policy factors in setting a limitation period for proceedings brought by enforcement bodies rather than ordinary litigants. It would provide consistency of limitation periods where offences and pecuniary penalties are created for the same conduct. The difficulty, however, is that the standard criminal limitation periods do not allow for situations where the breach is not uncovered for some time. As discussed above, we think the flexibility of the discoverability approach is desirable in a regulatory context to deal with these situations.

18.55On balance, our conclusion is that there is no compelling reason in principle for pecuniary penalty limitation periods to be strictly consistent with limitation periods that apply to different regulatory tools such as compensation orders or criminal offences. Although aligned limitation periods would allow maximum flexibility to enforcement bodies in selecting the type of proceedings to be initiated in response to the conduct in question, the requirements of regulatory efficiency and responsiveness require a more disciplined approach. Our view is that the limitation period should properly fit the particular method of enforcement. Differences can be justified by the different role and policy rationale for each form of regulatory response in the enforcement hierarchy.

18.56A discoverability approach for pecuniary penalties could mean that the limitation period might be shorter or longer than the five-year limitation period for criminal offences for the same conduct. This could, on occasion, influence a regulatory enforcement response – where a particular limitation period has expired the enforcement options available to the regulator may be reduced; however, the availability of alternative forms of proceedings provides a measure of flexibility that allows some form of enforcement to proceed.

Would a different limitation period for pecuniary penalties undermine limitation period standardisation?Top

18.57As noted above, the Criminal Procedure Act 2011 has introduced a measure of standardisation to the limitation periods for criminal offences. Similarly, the Limitation Act 2010 has consolidated the approach to limitation periods in civil proceedings. One policy consideration is whether departing from these established approaches is undesirable.

18.58The Limitation Act, in particular, was the result of a significant simplification project to remove numerous, distinct limitation periods for different causes of action and to develop a standard approach (although a number of differences still remain). This might be seen as a factor in favour of adopting the standard limitation provisions for pecuniary penalties. However, in moving from the two-year limitation period for penalties in the Limitation Act 1950, to the six-year money claims limitation period, the Law Commission reference group contemplated that specific pecuniary penalty statutes would depart from the Limitation Act as appropriate.529
18.59It is also clear that statutes besides pecuniary penalty statutes depart from the Limitation Act in particular circumstances (for example, the Building Act 2004 and the Fair Trading Act 1986).530 A number of other statutory regimes depart from the Limitation Act; for example, regimes relating to carriage of goods, maritime transport, employment personal grievances and accidental deaths.531

18.60The fact that many pecuniary penalty statutes depart from the Limitation Act (in a variety of ways) indicates that a default limitation period for pecuniary penalties needs to be considered. The policy factors discussed above suggest that the Limitation Act provisions may not be optimal in a regulatory enforcement context.

18.61On balance, our conclusion is that a default limitation provision for pecuniary penalties is not precluded by the law reform objectives of limitation law. The reasonable discoverability approach is present in the Limitation Act, such that a default provision based on discoverability could be viewed as a streamlining adjustment, rather than representing a substantive shift.

A default limitation period or a case-by-case approach?Top

18.62The variety of limitation provisions in current pecuniary penalty statutes suggests that a new default provision may bring greater standardisation and uniformity than the status quo. It is difficult to justify the existing variety of approaches to pecuniary penalty limitation provisions, and there is a strong argument, in our view, in favour of a model provision that appropriately reflects the underlying policy considerations, rather than taking a case-by-case approach.

18.63The model approach preferred is one based on reasonable discoverability; however, the Limitation Act approach should also be available as a secondary option in circumstances where there may be a specific policy justification for applying that model.

Is an express limitation provision required in every pecuniary penalty statute?Top

18.64A desirable practice, in our view, would be for pecuniary penalty statutes to include express and comprehensive limitation periods. Developing a model provision would be useful to reflect the default approach proposed to pecuniary penalty limitation periods (three years after reasonable discoverability of the contravention, subject to a 10-year longstop, plus fraud exception). This model provision should also take account of ancillary issues, such as how the limitation period will operate in circumstances where there is a continuing contravention or a series of related contraventions, and how to adapt section 14 of the Limitation Act 2010 to the pecuniary penalty context (as to when an enforcement body ought reasonably to have gained knowledge of the contravention).

18.65Where the full Limitation Act approach can be justified, the limitation provision in a pecuniary penalty statute should address the primary limitation period, the late knowledge period, the longstop period and the fraud exception. This would help to clarify issues of interpretation between the pecuniary penalty statute and the Limitation Act that might otherwise arise. A drafting option would be to reference the Limitation Act 2010 defence generally, rather than the six-year primary limitation period specifically, as illustrated by the approach taken in the Financial Markets Conduct Act 2013.532

GUIDELINE

G20 Pecuniary penalty statutes should generally provide for a primary limitation period of three years after reasonable discoverability of the contravention, with a 10-year longstop (subject to a fraud exception)

Pecuniary penalty statutes should deal expressly with periods of limitation.

A model approach to limitation periods in pecuniary penalty statutes is a primary limitation period of three years after reasonable discoverability of the contravention, with a 10-year longstop (subject to a fraud exception).

The Limitation Act 2010 defence to money claims (a six-year primary limitation period plus a three-year late notice period and a 15-year longstop) is an alternative limitation period for pecuniary penalties, in circumstances where there is a specific policy justification for applying that model.

512As noted above, the Act’s limitation periods include a six-year primary limitation period (plus a further three-year late knowledge period), subject to a 15-year longstop (extendable in the case of fraud).
513See for example the Financial Markets Conduct Act 2013, s 508.
514We note, however, that the limitation periods in the Financial Markets Conduct Act 2013, s 508, may represent a return to the standard Limitation Act 2010 approach.
515Katherine F Nelson “The 1990 Federal Fallback Statute of Limitations: Limitations by Default” [1993] Neb L Rev 454 at 462‒464.
516Murray v Eliza Jane Holdings Ltd (1993) 6 PRNZ 251 (CA) at 258–259. As enacted, the standard six-year civil limitation period was reduced to three years, but has since been amended in 2001, by the Business Law Reform Bill 1999 (319-3H), to a three-year discoverability period.
517Re Network Agencies International Limited [1992] 3 NZLR 325 (HC) at 328–329.
518​Issues Paper, above n 476, at [7.96].
519The Law Commission has previously suggested that the reasonable discovery rule is an extension of a strategy in equity (doctrine of laches): Law Commission Limitation of Civil Actions (NZLC PP39, 2000) at [41]–[46]. See Bryan Garner (ed) Black's Law Dictionary (8th ed, West Group, Boston, 2004) “laches”: “[t]he equitable doctrine by which a court denies relief to a claimant who has unreasonably delayed in asserting the claim, when that delay has prejudiced the party against whom relief is sought”; and “discovery rule”: “[t]he rule that a limitations period does not begin to run until the plaintiff discovers (or reasonably should have discovered) the injury giving rise to the claim … [U]sually applies to injuries that are inherently difficult to detect”.
520Examples include: the Fair Trading Act 1986, s 43(5); Retirement Villages Act 2003, s 84; Major Event Management Act 2007, s 50; and Credit Contracts and Financial Services Law Reform Bill 2013 (104-2), cl 48 and 52 (amending ss 90 and 95 of the Credit Contracts and Consumer Finance Act 2003).
521See also the International Institute for the Unification of Private Law (UNIDROIT) UNIDROIT Principles of International Commercial Contracts 2010 (Rome), art 10.2, which adopt a general limitation period of three years from the date of knowledge, with a 10-year longstop.
522Law Commission of England and Wales Limitation of Actions (LAW COM No 270, 2001).
523Irish Law Reform Commission Limitation of Actions (R104, 2011). The recommendation is for a core limitation regime for commonly litigated common law actions, not including pecuniary penalties.
524See Law Commission Limitation of Civil Actions, above n 489, at [42]: the orthodox approach “acts against defendants because in many cases a claimant is promptly aware that a claim should be brought but can keep the matter hanging for up to six years”.
525Law Commission Limitation of Civil Actions, above n 489,at [44]–[45]. See also Law Commission Tidying the Limitation Act, above n 489, at [10]: “a reasonable discoverability test is favourable to the plaintiff, [but] its open-endedness puts a defendant at a considerable disadvantage unless [there is a longstop]”. An insider trading decision pre-dating the Limitation Act 2010 noted the risk of uncertainty in importing a reasonable discoverability criterion into Securities Markets Act claims, with the Judge considering certainty to be most desirable for a quasi-criminal remedy such as a pecuniary penalty: Securities Commission v Midavia Rail Investments BVBA [2006] 2 NZLR 207 (HC).
526See Issues Paper, above n 476, at [7.85]–[7.90] for discussion of limitation of criminal proceedings.
527For smaller maximum fines, there are limitation periods of six or 12 months. The only pecuniary penalty that does not exceed $20,000 is the penalty stated in reg 32 of the Overseas Investment Regulations 2005 ($20,000). All other maximum pecuniary penalties are at least $100,000 for an individual.
528Health and Safety Reform Bill 2014 (192-1), cl 167. See also Charities Act 2005, ss 38 and 52; and Credit Contracts and Financial Services Law Reform Bill 2013 (104-2), cl 105 (replacing Credit Contracts and Consumer Finance Act 2003, s 105).
529See above n 489.
530Above n 520.
531Carriage of Goods Act 1979, s 19; Maritime Transport Act 1994, ss 97 and 411; Employment Relations Act 2000, s 114; Deaths by Accident Compensation Act 1952, s 10.
532Financial Markets Act 2013, s 508(1). See also the Financial Markets Conduct Act 2013, s 508(2)–(5) extending the Limitation Act 2010 defence to non-monetary orders.